A Train Wreck in the Bond Markets

Why investors, fearful of currency depreciation, have turned to gold...

Not so long ago, everyone seemed
to think Greece was about to leave the Euro.

Well, it hasn't. Yet.

And remember when Spain's government was only
days away from requesting a formal bailout?

Well, it hasn't. Yet.

Never underestimate the power of Europe's politicians to press the slow-mo
button on the single currency car crash.

But how long can all this go on? Things are getting worse, not better. As FT
Alphaville reports, Greece is facing another potential default next week,
while Spain's auction of 5-Year bonds this week was described by one trader
as "awful", with a wide range of bids suggesting little market consensus
on how the bonds should be priced. Reuters reports that this was the first
time in 18 months that Spain has tried to sell longer-term bonds.

Take a look at the following chart from the Spanish
Treasury, showing the maturity profile of Spanish government debt. See
the big spike for 2013?

Spain's debt is piling up at the short end. In a video recorded earlier this
year, BullionVault founder Paul
Tustain likens this phenomenon to a
train wreck in the bond markets, with government debt piling up against
the buffers until that government is either forced to default, or a devaluation
of the debt is orchestrated with central bank assistance - for example with
interest rates held below inflation for a sustained period.

Many investors worry that their currency will fail to hold its value. Many
of those have turned to gold. At the time of writing, gold in Euros is within
1.5% of its all-time high set last month. For gold priced in Dollars, the gap
is closer to 10%, from a high hit over a year ago.

Why the discrepancy? Because the crisis is more intense in Europe, that's
why. The value of the Euro is under far greater scrutiny.

Many investors believe the Dollar will one day face a similar test. Some of
those have added gold to their portfolio. To find out why, set aside twenty
minutes or so and watch
Paul's video from the beginning.

Editor of Gold News, the analysis
and investment research site from world-leading gold ownership service BullionVault,
Ben Traynor was formerly editor of the Fleet Street Letter, the UK's
longest-running investment letter. A Cambridge economics graduate, he is a
professional writer and editor with a specialist interest in monetary economics.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.